Recapping The First Quarter of the Year

The first quarter of the year is now over and what a busy three months it has been. Not for car sales unfortunately as the US (indeed the world) market has been down sharply since last fall. Yet, there are some signs that things may begin picking up as we move forward through the year with pent up demand bringing customers back to car showrooms.

Among the big events of January, February and March 2009 were:

Barack Obama Assumes The Presidency — Whether you voted for Obama or not, you must give him credit for spurring more legislation than most would expect in his young presidency. True, trillions of dollars of debt faces our country, something I absolutely hate to see. His plan for the auto industry involves sending billions more to GM and Chrysler, but with strings attached. If they don’t get their respective acts together than the government’s recourse is bankruptcy.

General Motors — The top selling automaker for 76 years saw its position change to Number 2, thanks to the rise of Toyota.  But, GM has been losing tens of billions of dollars since 2004, nearly running out of cash before the year ended.  Rick Wagoner, CEO/President of the company for the past eight years was ousted and the company is scrambling to shut down or sell brands, close plants, fire workers, etc. in a bid to emerge stronger. Also, just yesterday the company rolled out its “GM Total Confidence” program where the automaker has taken away the worry about buying a car in a sour economy.

Chrysler —  The smallest of the Big Three automakers, Chrysler’s position is the most desperate of them all. Its only hope for survival is to hook up with another automaker and since January Fiat sPa has been very public about wanting a piece of Chrysler. The two companies have less than thirty days to form an alliance or Chrysler could be liquidated.  Fiat will gain a 20% share in Chrysler while Chrysler will gain access to Fiat’s small car technology.

Ford — What’s the best thing about Ford? Not being bankrupt, that’s what. The second largest of the Big Three has been facing its challenges by renegotiating terms with the United Auto Workers, cutting production, shutting factories and sending excess workers packing. Moreover, the company has more new products arriving this year than either GM or Chrysler, including a line of hybrid sedans, a new Mustang, new or updated Lincoln models and an all new Ford Taurus this fall.  Ford has also introduced its own consumer protection plan.

Cash For Clunkers — Though not yet available in the US, a “cash for clunkers” program could stimulate sales as it puts cash in car buyer’s hands while removing polluting, older cars off the street. When President Obama discussed his plans for GM and Chrysler on March 30th, he hinted that Congress should get such a program together and submit that bill to him to sign. Germany and several other European countries offered a similar program, which has boosted sales in those countries.

There are quite a number of stories that I’m following right now, but I always leave open the possibility of covering breaking news. Please stop by The Auto Writer for daily updates including a look at corporate specific trends.

NADA Speaks Out About CARB Standards

One of the ways automakers will meet stringent CAFE regulations is to produce hybrid and pure electric cars. The BMW Group is working on one such car for its MINI.

The National Automobile Dealers Association (NADA) has weighed in on the recent Obama administration CAFE (corporate average fuel economy) changes, noting that California’s standards will now be lower than the federal governments.

CAFE Will Be Higher Than CARB

Beginning in model year 2011, the feds are requiring automobile manufacturers to have a fleet average of 27.3 mpg for the light duty fleet, which includes passenger cars and light trucks. That number is actually higher than California’s 26.7.

Quoting NADA Chairman John McEleney, “By setting a fuel economy standard higher than what California regulators have proposed, the Obama administration today removed the last argument for state-by-state regulation of fuel economy. The structure of California’s program — with its exemptions for major automakers, its ‘patchwork’ design and its loopholes — is unworkable as a national policy.”

California Hurts The Auto Industry

McEleney added, “Only a single, national fuel economy standard gives the auto industry the regulatory certainty necessary to produce and market the fuel efficient cars of tomorrow. In contrast, California’s patchwork fuel economy program would exacerbate the auto sector’s severe economic turmoil.

“Now that the new Corporate Average Fuel Economy (CAFE) law, passed by Congress in Dec. 2007, is at last being implemented, America’s auto dealers call on all stakeholders, including the Obama administration and California regulators, to embrace a single, national fuel economy standard.”

CAFE, CARB and California

CAFE has long been a point of consternation for the automobile industry as manufacturers attempt to balance customer demand for larger vehicles with the need to comply to federal regulations. With California and some other states setting their own regulations, the cost of building cars goes up with very little real gain achieved.

With the current economic climate being as challenging as it is, one would hope that the Obama administration would delay these changes until the industry recovers. Sales in 2008 collapsed and for the first three months of 2009 look to be equally dismal.

Please Read: Buick Musings, And Then There Was The Excelle

German Auto Subsidy Program Sparks Sales

This aged Romanian made Dacia 1310 is a prime example of the type of car Germany would like to see scrapped. In a bid to stimulate sales improve air quality, Germany is offering eligible new car buyers a US$3200 equivalent subsidy. Since the program was launched on January 17th, car dealerships have been flooded with customers. Based on this good news, might the Obama administration offer the same in the US?

As Congress passes one stimulus or bail out package after another, Americans are going to want to know which programs will actually stick. Some steps will simply expand government’s role in our lives, with not much in place to stimulate the economy directly, at least initially.

First time home buyers will be receiving assistance in the form of an $8000 tax credit if they buy a home this year, a move which could reverse the slumping housing industry. As far as stimulating new car sales, The American Recovery and Reinvestment Act of 2009 will allow car buyers to deduct local and state sales taxes, but that may not be enough to get buyers in dealer showrooms.

Germany’s Program Is Worth A Look

What our elected officials may want to do is take a look at Germany where Chancellor Angela Merkel’s government introduced a program that encourages the scrapping of old cars in favor of purchasing new, more environmentally friendly small cars. Under that program, which began on January 17th, Germany is offering a US$3200 subsidy for people who scrap an old car for a new one.

Since the program began, buyers have been flooding car showrooms which has had helped boost sales while removing older, more polluting cars from the roads. Ford, Dacia, Volkswagen, Opel and Fiat have all benefited from the program with some dealers running out of models.

For the Luxury Brands, Not Much Impact

Higher end automotive dealers such as Audi, BMW and Mercedes aren’t seeing much benefit from the program, likely for the reason that the cars being traded in wouldn’t qualify under the program. In addition, few dealers expect owners of a ten year old VW Polo to trade up to a luxury model in order to take advantage of the program.

But there is one down side to the German program: only the first 600,000 people who take advantage of the offer will get the government subsidiary. With as many as 1.2 million eligible car owners saying that they will definitely use the scrap bonus, the Merkel government may want to expand the program or offer it again in the near future.

Source: The Wall Street Journal